By Arra B. Francia
PHILSTOCKS FINANCIAL, Inc. sees the local bourse finishing the year within the 7,750 to 8,400 level, on expectations of higher spending due to the election season, improved corporate earnings, sustained economic growth, and lower inflation amid global headwinds.
The brokerage house said investors should keep a balanced view on the movements of the Philippine Stock Exchange (PSE) this year, citing how too much optimism in 2018 resulted to a more than 12% drop, while the cautiousness that prevailed in 2017 in turn provided the market with returns of about 25%.
“So for 2019… foremost among the narratives that we think will become a major thread of conversation is the midterm elections in May. Almost everyone is expecting that during an election year, the market goes up significantly,” Philstocks Research Head Justino B. Calaycay, Jr. said in a presentation of the company’s 2019 forecast in Pasig City last Friday.
Philstocks said that the PSE index (PSEi) posted an average 11.38% annual increase during the midterm elections since 2006, albeit lower than the 18.01% average on presidential election years. The counters for mining and oil and services also outperformed the benchmark index, soaring by an average of 23.9% and 17.86%, respectively, during years when a midterm election was held.
The company also noted that investors usually become more bullish on consumer retail, media entities, transportation, as well as communication firms.
With the election season in mind, Philstocks advised investors to bet on different sectors for each quarter. It favored financial, property, and industrial stocks for the first quarter, while dropping financials to make way for holding firms in the second. For the third to fourth quarter, the company switches to the services and mining and oil indices.
Aside from the elections, investors should keep an eye on slowing inflation. Foreign funds were on exit mode last year as foreign investors feared that accelerating inflation would drag down economic growth.
“For the supply side, we already saw that our agriculture problem has been solved because of the trade liberalization programs…unfortunately, we still have the oil to deal with, the production cut, as well as the second round of the excise taxes,” Philstocks Research Associate Jhapet Louis O. Tantiangco explained.
Mr. Tantiangco, however, expects the full impact of the Bangko Sentral ng Pilipinas’ rate hikes to kick in during the second to third quarter of 2019. The brokerage then forecasts inflation to fall within a 4.5-5.5% range.
On the corporate side, Philstocks projects PSEi-member companies to generate an average of 10-15% earnings growth. This considers the temporary boost in disposable income due to the midterm elections, hampered by higher fuel costs and higher borrowing costs.
The 2019 projection is higher than the 6.53% average bottomline growth of PSEi firms in the first nine months of 2018, and a 16.29% average increase in revenues for the same period.
“There will be many influences on the market, and at the end of the day we have to balance them and measure which ones are more important,” Mr. Calaycay said.